Lender Requesting Commentary to be removed

[TerryRohrer]

By finding homes that sold with double lots and measuring the contributory value against sales on single lots. They're out there. You'll typically find those in subdivisions where the primary developer/builder moved on leaving a bunch of orphan lots for sale.

I know those are out there. I almost never find those where the second site contributed to the transaction what its value is alone. I would not call that value in use...I would call that a marketing mistake.

 

[Mike Ault]

I know those are out there. I almost never find those where the second site contributed to the transaction what its value is alone. I would not call that value in use...I would call that a marketing mistake.

It's kind of like a swimming pool in this area. It doesn't contribute anything close to what it costs to install but it does result in a higher sales price to the right buyer. A marketing "mistake", but a common one. And a good example of "value in use". The original owner presumably got enough enjoyment out of the pool to make up for the monetary loss he experienced with the sale of his over improvement.

 

[TerryRohrer]

When there's a marketable 2nd parcel I do a separate land sale analysis and include the 2nd value in my report. But I also do as mentioned above and look for 2-parcel combos to compare against the SFR-only sales.

With that said, I don't work the GSE pipelines so what's right for them might vary

I think this approach arrives at the market value of the second tract. I think those throwing around the "value in use" are engaged in slight of hand and would bet fewer than 1 in 10,000 fully explain their approaches and conclusions and assumptions, including their definition of "value in use."

 

[Mike Ault]

I think this approach arrives at the market value of the second tract. I think those throwing around the "value in use" are engaged in slight of hand and would bet fewer than 1 in 10,000 fully explain their approaches and conclusions and assumptions, including their definition of "value in use."

We have perfectly buildable orphan lots sitting around for years and years in this area and the only buyer for those ends up being someone who wants an extra parcel for shops or horses, sometimes the owner of the home next door and other times buyers looking to build on larger sites. What would you call the value of those lots in that scenario? Would you refuse to incorporate them into your appraisal of the SFR next door due to HBU concerns?

 

[TerryRohrer]

It's kind of like a swimming pool in this area. It doesn't contribute anything close to what it costs to install but it does result in a higher sales price to the right buyer. A marketing "mistake", but a common one. And a good example of "value in use". The original owner presumably got enough enjoyment out of the pool to make up for the monetary loss he experienced with the sale of his over improvement.

I see them every now and again and have to sort through them. But I think the approach to value in use is bogus. There is no sound basis for allocating the value of the pieces from the price of the sale as a whole. And your suggestion that the original owner's motivation points to that owner's motivation, not any measure of any value of any part of any property. Its like "valuing" an easement.

I have worked in markets where similar tracts of land, with similar market values, were encumbered with easements that differed by factors of 5 or 10. What is the value of an easement in that market?

There was a short time during which I appraised the real estate included in nearly every bar transaction in a small resort-type community. In almost every case, someone wanted to argue about "their" allocation among the real estate, FF&E, and liquor license of their, and others', transactions. Their opinions on those matters were irrelevant to me, and if you quiz them long enough, they will slip and concede those allocations are based on either the buyer's or the seller's tax advantage or disadvantage. Again, nothing to do with the market.

I just ran across the situation you describe. I had analyzed it 10 years earlier when it sold as a package with the swimming pool on the second site. They gave away the second site trying to "save" the value of the pool. It sold again recently the same way, for $750,000. I found it when trying to understand a $1.8 million sale. The newly constructed home is where the swimming pool was. They had tried to market the extra lot by itself for between $299,000 and $449,000 for six months without success, and build the spec home. Shortly after the new home sold, the old one, sans swimming pool and extra lot, resold for $715,000. What is the value in use of the site from those facts? Or its market value from those facts?

 

[jay trotta]

When there's a marketable 2nd parcel I do a separate land sale analysis and include the 2nd value in my report. But I also do as mentioned above and look for 2-parcel combos to compare against the SFR-only sales.

With that said, I don't work the GSE pipelines so what's right for them might vary

Agree based on, in part;
Excess land refers to land that goes beyond what is required to support the current use of the property. It is distinct in that it can potentially be separated from the main parcel, ither pheysically or legally. Also, it may have a different highest and best use than the rest of the site. Because of its ability to be sold, developed, or used independently, excess land is considered to have its own value and should be appraised separately.

 

[Carnivore]

This AS A GREAT TOPIC and here is why. FHA 4000.1 VA, USDA farmers home , conventional etc all have rheir rules about surplus /excess identifiable 2nd lots or more.
I,,E, FHA reverse mortgages.

Reverse Mtg loans only value the site that the improvement aka house is sitting on lot 1 You donot consider or include lot# 2 . Even is it is on the same deed AND even if the stupid GiGS combines them. This is why I always pull the Deed. edit below

I did a FNMA REO a long time ago. Wehn I discovered my error and it was a big one I called them and explained what I did wrong. I used the wrong right of way.. They said thats ok we saw what you did because we already knew what was wrong. I could explain more of why I made that mistake.

 

[Dublin ohio]

Out of curiosity, how is everyone developing their opinion of the value in use of the second tract in these situations?

If value in use, you could compare to single sites similar to the total of the 2 sites. As far as comparing it to sales with 2 sites and one being excess. I think it would depend on type of financing. FHA does not include the value of the additional parcel. If you could confirm it went to Fannie, you could assume the sale price was value in use but that would be very tricky trying to confirm all of the necessary elements to support that assumption.

 

[TerryRohrer]

We have perfectly buildable orphan lots sitting around for years and years in this area and the only buyer for those ends up being someone who wants an extra parcel for shops or horses, sometimes the owner of the home next door and other times buyers looking to build on larger sites. What would you call the value of those lots in that scenario? Would you refuse to incorporate them into your appraisal of the SFR next door due to HBU concerns?

Same here until recently when most got built out with new homes. The price in an assemblage sale to a neighbor is not a market transaction. And I don't refuse to do anything if I agreed to the task at hand. If there is no value to the site on the open market, then I would argue that it cannot have a highest and best use as if vacant as a vacant site for future development of an SFR. Then it becomes a question of what it is worth as part of the whole property of two parcels and a dwelling. I see in almost every SFR appraisal I do that the contributory value of additional land is less than the value it might have if on the open market. The value of sites as if vacant is not the same as the value of sites as if improved. In this case, there would be no measurable difference between a property with two individual sites and the value of the same property with a single site the same size. Just crossed that bridge on a new home where they acquired two adjoining sites with a view (priced at $250,000 each) for $485,000, then spent a few thousand vacating the dividing line between the two. Despite a sh*t ton of work, I could not establish any value attributable to either their larger site, or their view, although I could clearly find both in the market for vacant tracts.

Working on one now for partial release where they purchased 7 acres and gave 3 to the kid. Vacant sites in the same subdivision clearly reveal a premium to the view lots overlooking the river compared to interior lots away from the edge. But that premium is gone once developed into SFRs. The recent sale of the subject "whole" supports that conclusion. So the value with the extra land is being reduced by something much less than half the value of that extra by itself.

 

[TerryRohrer]

If value in use, you could compare to single sites similar to the total of the 2 sites. As far as comparing it to sales with 2 sites and one being excess. I think it would depend on type of financing. FHA does not include the value of the additional parcel. If you could confirm it went to Fannie, you could assume the sale price was value in use but that would be very tricky trying to confirm all of the necessary elements to support that assumption.

I'm not sure I understand your first sentence. As far as how financing impacted a given transaction, I agree there is some likelihood that happens, but I don't have any sense of how to translate that to market value, or its impact on the same. That is why I tend to steer away from such allocations of price. They can only be supported until someone starts thinking about it and asking questions!